Property v. Liberty: The Supreme Court’s Radical Break with Its Historical Treatment of Corporations

Ruth H. Bloch and Naomi R. Lamoreaux, July 2014

In their briefs to the Supreme Court, counsel for Hobby Lobby Stores, Inc., and Conestoga Wood Specialties Corporation cited the Court's 2010 Citizens United decision in support of their claim that "First Amendment protection extends to corporations." In its June 30 decision, however, the Court dodged the constitutional issue and instead based its finding in favor of the companies on its interpretation of the Religious Freedom Restoration Act (RFRA) of 1993. Justice Samuel A. Alito Jr. declared in his majority opinion (1) that corporations are persons within the meaning of the Act; (2) that the Affordable Care Act's requirement that employers offer insurance coverage for contraception substantially burdens the exercise of religion; and (3) that the government has less burdensome ways of providing employees with access to contraception. In this comment we focus on the first of these three findings and show that the decision's narrow claims are belied by the broad language of the opinion. We then trace the history of the Supreme Court's jurisprudence on corporate rights and show that Alito's opinion breaks with a long line of decisions beginning in the 1880s that treated for-profit corporations as "persons" under the Constitution only for the purpose of protecting the property rights-not the liberties-of individual members.

Alito claims that the majority's ruling is based narrowly on statute and that it is limited in its application to closely held, family run corporations whose members share sincere religious beliefs. However, at various points in his opinion Alito indulges in a more expansive logic that belies these disclaimers, suggesting that the decision has larger constitutional ramifications and that the extension of free-exercise rights potentially applies to corporations whose members disagree about religious matters and even to large, public companies. In determining, for example, that RFRA's definition of a person includes corporations, Alito is not content to reference the Dictionary Act. Pouncing on the admission by the Department of Health and Human Services "that a nonprofit corporation can be a 'person' within the meaning of RFRA," he goes on to assert that "no known understanding of the term 'person' includes some but not all corporations" (pp. 19, 20). He goes even further when he points out that "a corporation is simply a form of organization used by human beings to achieve desired ends" and that when the courts extend rights to corporations ("whether constitutional or statutory") the purpose is to protect the rights of the people who make them up. "Protecting the free-exercise rights of corporations like Hobby Lobby, Conestoga, and Mardel protects the religious liberty of the humans who own and control those companies," he proclaims, just as "protecting corporations from government seizure of their property without just compensation protects all who have a stake in corporations' financial well-being" (p. 18). Of course the latter is a constitutional matter.

This expansive language is at odds with the way the Court has treated corporations historically. Although the justices have always shown concern for the constitutional rights of people associated in corporations, in all but the most special circumstances they have traditionally limited the rights they extended to business corporations to protections for property, not liberty. Beginning in 1886, for example, with the case Santa Clara v. Southern Pacific Railroad, Justice Stephen J. Field led the Supreme Court in parsing the various clauses of the Fourteenth Amendment so as to limit the constitutional protections afforded corporations. In Santa Clara and several follow-on cases the Court treated the equal protection and due process clauses as applying to corporate property. However, in Paul v. Virginia (1869) and Pembina Consolidated Silver Mining and Milling Company (1888) it ruled that the privileges and immunities of citizens did not extend to corporations, and in Northwestern National Life Insurance Company v. Riggs (1906) it held that the liberty protected by the Fourteenth Amendment was "the liberty of natural, not artificial persons." Nor did the Court ever determine that corporations were "persons whom a State may not deprive of 'life'" (Wheeling Steel Corporation v. Glander, 1949). Field laid out the logic of this parsing as early as 1882 in his circuit court opinion in the Railroad Tax Cases. The Fourteenth Amendment, he declared, protected the property of corporations because corporate property "in fact" belonged to "the corporators," but it did not protect the life and liberty of corporations because "the lives and liberties of the individual corporators are not the life and liberty of the corporation."

The Court continued in the 20th century to treat artificial and natural persons differently. It conceptualized corporations as creatures of governments and, as a general rule, extended constitutional rights to them only when necessary to safeguard the property of the natural persons who made them up. In Hale v. Henkel (1906), for example, the Court rejected a corporation's claim to the Fifth Amendment's protection against self-incrimination. Unlike human persons, the Court opined, corporations were creatures of the states that chartered them. When a state granted "special privileges and franchises" to one of its corporate creatures, the corporation held them only "so long as it obey[ed] the laws of its creation." Hence, states could legitimately require corporations "charged with an abuse of such privileges" to produce their books and papers. However, because a corporation was "but an association of individuals" who did not lose their constitutional rights when they invested their wealth, the corporation's "property [could not] be taken without compensation." Nor could it be subject to unreasonable search and seizure. The Court reiterated this distinction in the 1950 case United States v. Morton Salt Co.: corporations "should have protection from unlawful demands made in the name of public investigation," but they "can claim no equality with individuals in the enjoyment of a right to privacy." The Court went on to explain that corporations "are endowed with public attributes. They have a collective impact on society, from which they derive the privilege of acting as artificial entities." Alito is, to say the least, disingenuous in citing some of these precedents but not others and in generalizing from cases protecting property rights to "privacy interests" and religious practices (p. 18), as if liberty rights automatically followed.

Under some special circumstances, the Court has historically upheld constitutional claims of liberty rights by for-profit corporations. For example, starting with Grosjean v. American Press Company in 1936, the Court has protected the First Amendment rights of publishers and broadcasters organized as corporations. The quotation cited above from Citizens United actually referenced this stream of cases, a context obscured in the Hobby Lobby and Conestoga Wood briefs. Since the 1976 case of Virginia State Pharmacy Board v. Virginia Citizens Consumer Council, the Court has also defended the commercial speech rights of companies specifically in relation to business advertising. Otherwise, the extension of liberty rights to corporations has been confined to nonprofit corporations. The Court has given free-exercise rights to incorporated (as well as unincorporated) churches and religious denominations; and beginning in the 1950s, it has given associational and speech rights to incorporated advocacy organizations, such as the National Association for the Advancement of Colored People (NAACP). Justice William H. Rehnquist emphasized the exceptional nature of these cases in his 1978 dissent in First National Bank of Boston v. Bellotti (the main precedent for Citizens United), arguing that business corporations did not have "a constitutionally protected liberty to engage in political activities." The majority opinion in Bellotti, written by Justice Lewis F. Powell, dodged the issue of what constitutional rights corporations possessed, as did the majority opinion in Citizens United and now Hobby Lobby

Since Bellotti, however, a few lower court judges have offered sensible answers to the question of corporations' constitutional rights that are worth contemplating. In 1981, a federal appeals judge mined the Supreme Court's decision in NAACP v. Alabama (1958) to propose a test to determine when a corporation might properly assert constitutional rights to liberty: when it was a membership organization formed to promote "principles and policies" and was open to any like-minded person who wished to join (Church of Scientology v. Cazares, 1981). Justice Ruth Bader Ginsburg ends her dissenting opinion in Hobby Lobby by expressing approval of a similar test proposed in 2010 to determine if a corporation could claim a free-exercise right: the corporation would need to be "formed 'for a religious purpose,' 'engage[d] primarily in carrying out that religious purpose,' and not 'engaged . . . substantially in the exchange of goods or services for money beyond nominal amounts'" (p. 35, quoting from concurrence in Spencer v. World Vision, Inc., 2010). Either of these tests would be consistent with the historical record of the Court's decisions from Santa Clara to Bellotti. As for-profit businesses, Hobby Lobby and Conestoga Wood would not pass.

Ruth H. Bloch is professor emerita in the Department of History at UCLA. She is the author of Visionary Republic: Millennial Themes in American Thought, 1756-1800 and Gender and Morality in Anglo-American Culture, 1650-1800.

Naomi R. Lamoreaux is Stanley B. Resor Professor of Economics and History at Yale University, chair of the History Department, and a research associate at the National Bureau of Economic Research. She is the author of The Great Merger Movement in American Business, 1895-1904 and Insider Lending: Banks, Personal Connections, and Economic Development in Industrial New England.

Bloch and Lamoreaux are working together on a book covering the history of privacy rights in America and on papers entitled "Corporations and the Fourteenth Amendment" and "Legal Constraints on the Development of American Non-Profit Groups, 1780-1900."